Save Big Bucks When Opening a Restaurant

THE KITCHEN SINK // ERIK BLAUBERG // MAY 2014(As seen in FSR Magazine)

Tips that will help every restaurateur save hundreds of thousands of dollars

While thousands of restaurants open each year, many don’t make it past the first year due to undercapitalization—the number one reason that great restaurants fail. Many restaurateurs believe they can operate a new restaurant on cash flow alone, and don’t have enough reserve saved to cover operating costs through the first year. That is why it’s especially important to save money when redesigning or building a restaurant.

A few simple tricks and a little negotiating can help to save you hundreds of thousands of dollars before your restaurant even opens its doors, and continue to save money over the years to come.

Lease Negotiations

A well-negotiated lease can save you a ton of money in upfront costs. Before signing a lease, find out what concessions the landlord is willing to give. Installing restaurant necessities such as electrical service to run kitchen equipment, sufficient air conditioning and heating, and proper ventilation can be expensive, especially if the restaurant location is in a multi-storied building. Many landlords will agree to pay part of these costs or give you discounted rent for a portion of time to cover these upfront costs. And while most landlords will not charge you rent during the first three months of renovations, ensure that if the restaurant doesn’t open in time, your landlord is willing to extend your free rent for a couple of weeks to a month.

If the restaurant should fail for some reason, ensure that you’re not personally guaranteed for the entire lease period and that you can transfer or sell the lease. Many landlords will put in a “good guy” clause which says you’re only liable for the first two years, should the restaurant close. On the flip side, after investing money in building a restaurant, it is also necessary to have the option to extend the lease.

Lastly, don’t end up paying for the utilities of someone else’s business. Inquire if you’ll be sharing the electric or heat with any adjacent businesses and make sure there are dedicated water, gas, and electric meters solely for your space. Remember, at the end of the day, you are improving the landlord’s real estate value, so it’s only fair they should help with some initial upfront costs.

Choosing Your Architect and Reviewing Plans

When hiring an architect, make sure you know all the costs upfront, and do a background and reference check. Ask if your architect is willing to self-certify the drawings. Architect-certified drawings will allow you to bypass the lengthy inspection process with the Department of Buildings who will grant the proper permits in a matter of days.

Once you’ve got the plans, make sure you review them carefully. Check that the locations of the bathrooms and kitchen are where the sewer and water lines are so you don’t have to install new pipe. Most importantly, make sure you’re happy with the plans, because once construction starts, any change orders you need will cost twice as much. Even a few change orders can easily put your project over budget.

Hire Your Own Build-Out Team

Standard practice in construction projects is to hire a contractor who hires and manages all the trades and the project. The contractor gets paid one price and is then responsible for paying everybody on the team. While this is the easiest method, you don’t know how much you are paying the electrician, plumber, carpenters, and mechanical engineers. You can save money if you hire each of the trades individually and then hire the contractor last to manage the team already in place. Not only will you save money by hiring your own team, you can also ensure you’re hiring the best people for the project, and check references for each.

Once you’ve hired the team, ensure that everybody has read all drawings and spec sheets on the mechanical, electric, plumbing, and gas requirements. All the trades must work together in a timely fashion and understand the order of work to be done. Also ensure team members agree to redo work at no extra cost that was not done according to the plans and specs sheets that you set forth.

Kitchen Design and Equipment

Before you buy any equipment for your kitchen, put together a list of everything you will want your kitchen to do. Will you be catering? Offering takeout? Hosting in-house events? Lay out an efficient kitchen in the beginning that will be able to handle everything on your current and future wish list. While this might mean higher costs and expensive equipment upfront, you’ll save more money in the long run by not having to redesign your kitchen if you end up altering your original concept. Consult a chef in the kitchen design. Chefs often make the best kitchen designers because they work in them every day and know what is needed for efficiency. You don’t want your chef to run down and grab an ingredient when he or she is in the middle of cooking. Over time, a well-designed kitchen will save you money and require less kitchen staff to operate.

When ordering kitchen equipment, ask the company what they need to sell and see if they might be able to give you a deal. Companies often give discounts on equipment that’s left over from a previous order and wasn’t used. While discounts are great, don’t settle for a lesser piece of equipment that won’t be able to handle the tasks of your restaurant.

This important and effective shortlist of techniques will allow you to build your dream restaurant and come in under budget. By saving money before the restaurant opens, you can build a better financial model that will allow you to more effectively run your restaurant, manage costs, and help you attract future investors.